Golddiggers has zero net income if it sells gold for a price of $380. However, by shorting a forward contract it is possible to guarantee a profit of $40/oz. Suppose a manager decides not to hedge and...

Golddiggers has zero net income if it sells gold for a price of $380. However, by shorting a forward contract it is possible to guarantee a profit of $40/oz. Suppose a manager decides not to hedge and the gold price in 1 year is $390/oz. Did the firm earn $10 in profit (relative to accounting break-even) or lose $30 in profit (relative to the profit that could be obtained by hedging)? Would your answer be different if the manager did hedge and the gold price had been $450?